Present Value of Cash Streams-Rent Payment-Rate of Return

Hi, here is the scenario we have regarding our rent we pay for our business office.

Normally, rent is $2,300/month, paid on the 1st of the month.

Our landlord has offered to give us a 7% discount if we pre-pay. That means rent is $2,139/month.

We are considering pre-paying rent for 6 months out. We plan to make that payment December 31, 2010 and it will be for the January-June (6 months) 2011 period. This would mean we pay $12,834 on December 31.

What sort of calculations should we be doing to evaluate this deal? Do we want to find the rate of return? The Future Value of our pre-payment? We know getting this discount is good, but we aren't sure how good and how to properly evaluate it.

I am not sure how you obtained your method so you are more than welcome to explain it.

Not much to explain:
Lessee:
1: we know that $12,834 is paid upfront
2: we know that because of that, $2,300 monthly will not be paid for 6 months
Landlord:
1: will receive $12,834
2: will repay with 6 monthly payments of $2,300 (equivalent to not receiving these payments...);
...or, if you wish, will receive $2,300 but give it right back to the lessee as loan repayment!

One other matter...PremiumCans, when are those monthly rent payments due? If you're paying $12,834 on or about Dec 31 to save 6 cash outflows of $2,300 on Jan 1, Feb 1, ...., Jun 1, then your actual annualized return comes in at just south of 36% (~ 3.0 % per month).